planning ahead

Letting the Air out Airbnb

by M. Brett Gladstone

Since its debut in September 2008, vacation rental website Airbnb has grown to boast 5 million nights booked across the world. Airbnb currently lists over 5,000 properties for rent in San Francisco on its website. As the popularity of rentals through Airbnb and many similar sites has grown, many landlords have become concerned that their buildings have been turned into quasi-hotels, and may be subject to more wear and tear and disruptions than with month-to-month tenants. It may also subject owners to Notices of Violations from the San Francisco Planning Department.

The city is also concerned because the tax collector is deprived of hotel tax; and the hospitality industry considers illegal tourist rentals to be unfair competition. San Francisco Tax Collector José Cisneros has recently clarified that hotel taxes apply to Airbnb rentals. Anyone who rents out a room must pay an approximately 15% transient occupancy tax (except rooms that rent for less than $30 a day or $100 per week).

Many of these rentals have been illegal for some time under an existing San Francisco law that prohibits the rental of an apartment for less than 30 days. A new ordinance, which went into effect December 1, 2012, broadens this restriction to apply to rentals of not only full apartments, but also rooms, for a period of time of less than 30 days. This does not pertain to “group housing,” whether it is market rate or affordable group housing; in such a situation, tenants are allowed to rent by the week. Under the new law, both the owner of the property and the lessee alleged to have offered the property for rent can be held liable. As further explained below, enforcement action can now be brought by a nonprofit focused on housing issues, such as the Tenderloin Housing Clinic.

The previous ordinance was enforceable only by the city or by a building resident. However, many rental housing activists felt that city enforcement suffered due to the lack of a designated enforcement agency and a lack of city resources, which hindered investigations. Building residents have often lacked both the financial resources to file suit and the time to pursue the case.

The new law now also empowers nonprofits in the housing field to file a civil action to stop the illegal rentals. The nonprofit may also recover the costs of enforcement, including attorneys’ fees. This incentive encourages nonprofits to act and has proven successful in other instances of violations of rental housing regulations. Many previous rental housing protections were rarely enforced by city departments in the past, but enforcement grew once housing nonprofits were given the right to sue landlords, recover costs and, in some instances, keep monetary awards won. For the first time, effective December 1, 2012, city law prevents corporations from being the renting entity and then renting to their employees or guests on a nightly basis.

Building owners should take proactive steps to protect themselves through lease prohibitions, and vigilant checking of Airbnb and related sites. However, should you find yourself on the wrong end of an enforcement notice, you should also know about city remedies and fines and your appeal rights.

Under the new law, once a complaint has been filed, the San Francisco Department of Building Inspection will investigate. Residential building owners have a responsibility under the law to maintain records on occupancy, which DBI can request in addition to inspecting the property. If DBI determines that there may have been a violation, it may schedule an administrative hearing.
Within 15 days of the filing of complaint and the DBI Director’s determination of a possible violation, notice will be sent to the owner via certified mail. This notice will provide the date, time and location of an administrative hearing on the matter held within 60 days of the filing of the complaint. The building owner must post notice of the hearing in the building for at least 10 days (and must confirm this under oath at the hearing).

The owner can be represented by an attorney at the hearing and will have the opportunity to cross-examine witnesses. If the owner does not appear, the hearing may still go on. Testimony is given under oath. The hearing officer will consider all information provided by the owner, lessee, city staff, building residents, housing nonprofits, and the public.

If a violation is found, you will be given a reasonable time to correct, or administrative penalties will apply. If no violation is found, the decision is final. You must also post notice of the hearing officer’s findings in the apartment building. Any party may appeal through judicial routes within 20 days of service of decision. A violation is a misdemeanor punishable by up to a $1,000 fine and/or up to six months in jail. Each residential unit or portion of it offered for rent is considered a separate offense.

If violations are not abated in the time given, the city may charge four times the currently $104 standard hourly administrative rate for each unit illegally rented for the duration of the illegal rental, in addition to reimbursement of the city’s enforcement costs, including attorney’s fees. A lien on the property may be pursued.

Following a finding of a violation through the administrative hearing, a housing nonprofit or building resident can file civil suit for monetary and injunctive relief. The building owner may also be liable for up to $1,000 a day in civil penalties during the term of the illegal rental. The city and interested parties can pursue collection of the costs of enforcement, including attorney’s fees up to the amount of the monetary award.

If you as a landlord wish to offer rooms for rent on a short-term basis, you may be able to apply to the planning department for approval of a bed-and-breakfast use, which is allowed by the planning code in almost all zoning districts. You may also rent a room within a unit to a tourist on a weekly basis (up to a finite number of weeks) if your building has received a “group housing” approval from the planning and building departments.

The information within this article is general in nature. Consult an attorney for any specific problem. M. Brett Gladstone is a partner in the San Francisco law firm of Hanson Bridgett, LLP and can be contacted at 415-777-3200.